1 00:00:03,960 --> 00:00:06,240 Sean Aylmer: Welcome to the Fear and Greed daily interview. I'm Sean 2 00:00:06,240 --> 00:00:09,929 Sean Aylmer: Aylmer. Last week, we saw the US Federal Reserve pause 3 00:00:09,929 --> 00:00:13,289 Sean Aylmer: on interest rates, but more hikes are in the offing, 4 00:00:13,349 --> 00:00:15,839 Sean Aylmer: well, at least, we think they are. And in Australia, 5 00:00:15,839 --> 00:00:18,540 Sean Aylmer: with a hot labor market and inflation that's still too 6 00:00:18,540 --> 00:00:22,860 Sean Aylmer: high, economists expect the Reserve Bank to keep increasing interest 7 00:00:22,860 --> 00:00:25,829 Sean Aylmer: rates. So what's it all mean for investors? Where are 8 00:00:25,829 --> 00:00:29,909 Sean Aylmer: the opportunities in this environment, both here and overseas? Remember, 9 00:00:29,910 --> 00:00:32,549 Sean Aylmer: this is general information only and you should seek professional 10 00:00:32,549 --> 00:00:36,599 Sean Aylmer: advice before making any investment decisions. Anto Joseph is the 11 00:00:36,600 --> 00:00:42,089 Sean Aylmer: Chief Executive Officer and founder of investment FinTech Stropro. Anto, welcome 12 00:00:42,090 --> 00:00:42,870 Sean Aylmer: to Fear and Greed. 13 00:00:43,229 --> 00:00:44,970 Anto Joseph: Thank you, Sean. It's good to be here. 14 00:00:45,598 --> 00:00:50,880 Sean Aylmer: So how would you characterise the investment environment right now? 15 00:00:51,630 --> 00:00:54,900 Anto Joseph: Yeah, it's actually interesting that you sort of mentioned about 16 00:00:55,200 --> 00:00:59,430 Anto Joseph: the Fed pausing. I think even though US inflation is 17 00:00:59,430 --> 00:01:02,880 Anto Joseph: cooling and the S&P 500 is at sort of 13 18 00:01:02,880 --> 00:01:08,250 Anto Joseph: months high, economic uncertainty is still very much persisting, particularly 19 00:01:08,250 --> 00:01:11,340 Anto Joseph: because it's challenging a lot of what the Fed decisions 20 00:01:11,340 --> 00:01:16,980 Anto Joseph: might look like. I mean, core inflation exceeded expectations at 5.3%. 21 00:01:16,980 --> 00:01:20,580 Anto Joseph: So I think we're still fairly a long way away 22 00:01:20,580 --> 00:01:25,139 Anto Joseph: from that Fed reserve target of 2%. But to characterize 23 00:01:25,139 --> 00:01:28,830 Anto Joseph: the environment, to sort of answer that question, I think 24 00:01:28,830 --> 00:01:33,150 Anto Joseph: there are three things that are really vital, what investors 25 00:01:33,150 --> 00:01:36,030 Anto Joseph: are thinking about, and that's really, there's a clarity of 26 00:01:36,030 --> 00:01:39,809 Anto Joseph: market direction. The best reflection of this is probably seen 27 00:01:39,809 --> 00:01:42,568 Anto Joseph: in the trading volume we saw in the Australian equity market, 28 00:01:42,569 --> 00:01:45,809 Anto Joseph: which was down 30% year- on- year in May. And 29 00:01:45,809 --> 00:01:49,470 Anto Joseph: volatility has remained very low and there's less buyers in 30 00:01:49,470 --> 00:01:50,370 Anto Joseph: the market at the moment. 31 00:01:50,760 --> 00:01:54,300 Sean Aylmer: Is that because of a lack of certainty? Is that what 32 00:01:54,930 --> 00:01:55,470 Sean Aylmer: triggers that? 33 00:01:55,470 --> 00:01:57,809 Anto Joseph: I would say that it's, yeah, very much a lack of 34 00:01:57,809 --> 00:02:01,409 Anto Joseph: certainty. I think you can look at even the Fed 35 00:02:01,410 --> 00:02:05,100 Anto Joseph: as an example where terminal rate forecast is still struggling 36 00:02:05,100 --> 00:02:08,430 Anto Joseph: to reach a consensus, the point at which interest rate 37 00:02:08,430 --> 00:02:11,669 Anto Joseph: curve really reflects the highest point of future rate expectations. 38 00:02:11,940 --> 00:02:16,500 Anto Joseph: It's not very clear what's happening. As you mentioned, Citibank 39 00:02:16,530 --> 00:02:20,070 Anto Joseph: is forecasting up to two more rate hikes further this 40 00:02:20,070 --> 00:02:24,418 Anto Joseph: year, but that current pause might sort of suggest otherwise. 41 00:02:24,630 --> 00:02:28,350 Anto Joseph: More interestingly, I think what investors tend to forget a 42 00:02:28,350 --> 00:02:31,889 Anto Joseph: little bit about is the market impact of the rate 43 00:02:31,889 --> 00:02:35,190 Anto Joseph: hikes, we've already seen this, it tend to be a 15 to 20- 44 00:02:35,190 --> 00:02:39,179 Anto Joseph: month lag on the impact of fiscal tightening, which will 45 00:02:39,179 --> 00:02:42,210 Anto Joseph: be only felt in sort of medium to longer- term. 46 00:02:42,210 --> 00:02:45,630 Anto Joseph: But the other thing that's very interesting is, I guess, 47 00:02:45,840 --> 00:02:50,549 Anto Joseph: this liquidity cliff conversation, that passing of that debt ceiling 48 00:02:50,550 --> 00:02:55,049 Anto Joseph: in the US obviously has led to a bit of a rally in 49 00:02:55,049 --> 00:02:58,109 Anto Joseph: US rates, it's because the US treasury has had to 50 00:02:58,109 --> 00:03:01,440 Anto Joseph: rapidly raise debt to maintain liquidity, which means that the 51 00:03:01,440 --> 00:03:04,590 Anto Joseph: Federal Reserve balance sheet is likely to shrink. And so, 52 00:03:04,590 --> 00:03:08,250 Anto Joseph: you're seeing this that this forecast of, potentially, a trillion 53 00:03:08,250 --> 00:03:12,299 Anto Joseph: dollar withdrawal of liquidity between now and July, which could 54 00:03:12,690 --> 00:03:15,508 Anto Joseph: bring back a little bit of volatility into the market 55 00:03:15,900 --> 00:03:17,880 Anto Joseph: and maybe lead to a bit of a pullback overall. 56 00:03:17,910 --> 00:03:23,340 Sean Aylmer: Okay. That's the US, and we are always very focused on 57 00:03:23,340 --> 00:03:26,369 Sean Aylmer: the US. I just want to ask you, Anto, about 58 00:03:26,429 --> 00:03:30,179 Sean Aylmer: Japan, because that's had quite a run in recent months. 59 00:03:31,950 --> 00:03:35,550 Anto Joseph: Yeah, absolutely. And I think that's very interesting. At Stropro, 60 00:03:35,550 --> 00:03:37,560 Anto Joseph: one of the things that we do is we work with a 61 00:03:37,560 --> 00:03:40,860 Anto Joseph: panel of investment banks. So we understand where a lot 62 00:03:40,860 --> 00:03:45,179 Anto Joseph: of investors, particularly institutional flow, is moving. And the Japanese 63 00:03:45,179 --> 00:03:48,569 Anto Joseph: financial system, which we've observed over the last sort of 64 00:03:48,570 --> 00:03:51,809 Anto Joseph: six months, has been the healthiest it's been in the last 65 00:03:51,809 --> 00:03:56,760 Anto Joseph: 40 years. The largest Japanese banks have strong retail deposit 66 00:03:56,760 --> 00:04:01,230 Anto Joseph: bases, there's higher liquidity coverage than US banks at the 67 00:04:01,230 --> 00:04:06,960 Anto Joseph: moment. Year to date, Japanese markets have 18.5%, it's at a 30- year- 68 00:04:06,960 --> 00:04:11,279 Anto Joseph: high. And I think there's a few contributing factors that 69 00:04:11,279 --> 00:04:14,640 Anto Joseph: sort of lead to that. One, the weaker yen has 70 00:04:14,640 --> 00:04:19,229 Anto Joseph: also strengthened exports, which is important as a GDP driver. The 71 00:04:19,230 --> 00:04:22,289 Anto Joseph: Bank of Japan is maintaining a fairly dovish stance to 72 00:04:22,320 --> 00:04:24,779 Anto Joseph: try and heat up the economy. But what we saw 73 00:04:24,779 --> 00:04:26,549 Anto Joseph: at the start of the year, which is quite interesting, 74 00:04:26,549 --> 00:04:30,118 Anto Joseph: is that the Tokyo Stock Exchange has increased some of the 75 00:04:30,150 --> 00:04:35,039 Anto Joseph: regulatory reporting requirements for Japanese equity market, which address some 76 00:04:35,040 --> 00:04:39,570 Anto Joseph: of the historic inefficiencies that existed there, which means that 77 00:04:39,570 --> 00:04:42,570 Anto Joseph: you're likely going to see a little bit more value 78 00:04:42,570 --> 00:04:46,440 Anto Joseph: creation in the equity market as that cleanup happens. And 79 00:04:46,440 --> 00:04:50,159 Anto Joseph: so, balance sheets of Japanese companies at the moment seem 80 00:04:50,160 --> 00:04:54,240 Anto Joseph: to be stronger than their global counterparts, and that's where 81 00:04:54,240 --> 00:04:57,630 Anto Joseph: you've seen a significant amount of flow move into public 82 00:04:57,630 --> 00:05:01,678 Anto Joseph: markets like Japan. But on the other side, when you 83 00:05:01,678 --> 00:05:04,320 Anto Joseph: talk about where flow's going, a lot of high net 84 00:05:04,320 --> 00:05:07,830 Anto Joseph: worth investors are sort of veering away from that 60/ 40 85 00:05:07,830 --> 00:05:12,150 Anto Joseph: split between equity and bonds and leaning more towards alternatives. 86 00:05:12,810 --> 00:05:14,969 Sean Aylmer: Stay with me, Anto, we'll be back in a minute. 87 00:05:21,420 --> 00:05:24,570 Sean Aylmer: I'm speaking to Anto Joseph, CEO and founder of investment FinTech 88 00:05:24,660 --> 00:05:27,870 Sean Aylmer: Stropro. You do a lot of work with ultra- high 89 00:05:27,870 --> 00:05:31,890 Sean Aylmer: net worth individuals or you have data about where they 90 00:05:31,890 --> 00:05:36,029 Sean Aylmer: are putting their money. When you're talking about alternatives, just 91 00:05:36,029 --> 00:05:39,450 Sean Aylmer: define that for us and then, maybe dive a little 92 00:05:39,450 --> 00:05:41,008 Sean Aylmer: deeper into what they're interested in. 93 00:05:41,369 --> 00:05:43,678 Anto Joseph: Yeah, absolutely. And I think that's a great place to 94 00:05:43,680 --> 00:05:48,540 Anto Joseph: start. Alternative investments can be quite broad, but they typically 95 00:05:48,540 --> 00:05:52,950 Anto Joseph: are anything outside of those traditional asset classes, equities, bonds, 96 00:05:52,950 --> 00:05:56,880 Anto Joseph: property. And so, they can include things like private equity, 97 00:05:57,210 --> 00:06:00,960 Anto Joseph: private debt or asset- backed debt or private credit, hedge 98 00:06:00,960 --> 00:06:06,390 Anto Joseph: funds, venture capital, private equity, and structured investments. So the 99 00:06:06,390 --> 00:06:11,219 Anto Joseph: primary objective of an alternative investment is to provide investors non- 100 00:06:11,219 --> 00:06:16,589 Anto Joseph: correlated market exposure to enhance diversification in the portfolio. So 101 00:06:17,190 --> 00:06:20,549 Anto Joseph: I think alternatives are very much on the rise in 102 00:06:20,550 --> 00:06:23,339 Anto Joseph: that sort of ultra- high net worth segment. We're seeing 103 00:06:23,339 --> 00:06:28,618 Anto Joseph: that in portfolios globally, the average is sort of 26% 104 00:06:28,620 --> 00:06:32,490 Anto Joseph: equity, 17% bonds, and the rest being allocated to alternatives, 105 00:06:32,849 --> 00:06:36,990 Anto Joseph: whether that be property, private equity, venture capital. So there's 106 00:06:36,990 --> 00:06:40,770 Anto Joseph: clearly a strong trend to have lower correlation to the 107 00:06:40,770 --> 00:06:42,930 Anto Joseph: market or non- correlated market exposure. 108 00:06:43,650 --> 00:06:45,330 Sean Aylmer: So the obvious question, why? 109 00:06:45,839 --> 00:06:50,519 Anto Joseph: Yeah, so I think, really, here is because probably, as 110 00:06:50,520 --> 00:06:53,519 Anto Joseph: I mentioned before, there's less buyers in the market. And 111 00:06:53,520 --> 00:06:56,580 Anto Joseph: I think if you talk to most institutional commentators, they'll 112 00:06:56,580 --> 00:06:59,940 Anto Joseph: talk to you about this sort of subdued equity market and 113 00:06:59,940 --> 00:07:03,690 Anto Joseph: subdued growth environment, at least over the next 12, 24 months. 114 00:07:04,230 --> 00:07:08,250 Anto Joseph: And typically, where alternatives will play really well is in 115 00:07:08,250 --> 00:07:11,940 Anto Joseph: these types of sideways markets or highly volatile markets, they'll 116 00:07:11,940 --> 00:07:16,860 Anto Joseph: try to provide sort of consistent returns without relying on 117 00:07:16,860 --> 00:07:20,309 Anto Joseph: a bull market. So we're seeing this flight to alternatives, 118 00:07:20,309 --> 00:07:25,740 Anto Joseph: but more importantly, a flight to quality alternatives. So typically, 119 00:07:25,799 --> 00:07:29,160 Anto Joseph: assets like venture capital, private equity, they need to be 120 00:07:29,160 --> 00:07:34,080 Anto Joseph: held fairly longterm and have liquidity challenges. What we're seeing 121 00:07:34,290 --> 00:07:38,550 Anto Joseph: right at the moment is we want non- correlated market exposure, 122 00:07:38,849 --> 00:07:41,640 Anto Joseph: but we also want this kind of nuance of liquidity. 123 00:07:42,150 --> 00:07:45,900 Anto Joseph: And so, what we're seeing, particularly in Asia, US and Europe, 124 00:07:46,289 --> 00:07:51,210 Anto Joseph: is this appetite towards structured products and structured products or 125 00:07:51,210 --> 00:07:55,530 Anto Joseph: structured investments have been financial instruments that have been really 126 00:07:55,530 --> 00:08:00,510 Anto Joseph: customised to meet specific investor objectives, and they're packaged up 127 00:08:00,780 --> 00:08:05,280 Anto Joseph: through a combination of bonds and derivatives by large institutional banks. 128 00:08:05,670 --> 00:08:08,580 Anto Joseph: But you are seeing this huge appetite for structured products 129 00:08:08,580 --> 00:08:11,760 Anto Joseph: because they can be really tailored around any sort of 130 00:08:11,760 --> 00:08:14,040 Anto Joseph: market scenario or investor objective. 131 00:08:14,490 --> 00:08:16,019 Sean Aylmer: Okay, so you're going to have to break that down 132 00:08:16,020 --> 00:08:18,719 Sean Aylmer: even further for people like me. So what you're talking 133 00:08:18,719 --> 00:08:21,839 Sean Aylmer: about, it might be an asset that has some inflation 134 00:08:21,839 --> 00:08:24,929 Sean Aylmer: protection built in, it's got a floor in it, so 135 00:08:24,930 --> 00:08:28,380 Sean Aylmer: if an asset price falls below something, it might trigger 136 00:08:28,380 --> 00:08:32,069 Sean Aylmer: a sale or something. It's almost like taking a bunch 137 00:08:32,070 --> 00:08:34,799 Sean Aylmer: of things out of the toolkit and creating a product 138 00:08:34,860 --> 00:08:40,078 Sean Aylmer: around that using derivative products and hedging, am I right 139 00:08:40,080 --> 00:08:40,380 Sean Aylmer: in that? 140 00:08:40,770 --> 00:08:44,520 Anto Joseph: Yeah, you've pretty much nailed it. Structured product, by virtue 141 00:08:44,520 --> 00:08:48,000 Anto Joseph: of the term structuring, you're structuring a series of components 142 00:08:48,000 --> 00:08:53,340 Anto Joseph: together. And so, firstly, they're typically issued by a global 143 00:08:53,340 --> 00:08:56,699 Anto Joseph: investment bank and can be linked to any listed asset 144 00:08:56,700 --> 00:09:02,670 Anto Joseph: class predominantly across the world. We work with sort of 145 00:09:02,670 --> 00:09:06,510 Anto Joseph: nine institutional trading teams, but whether a client is looking 146 00:09:06,510 --> 00:09:10,469 Anto Joseph: to get enhanced income and mitigate some of that downside 147 00:09:10,469 --> 00:09:14,400 Anto Joseph: risk, that can be a structured product or investment they can put 148 00:09:14,400 --> 00:09:18,239 Anto Joseph: together. If a client's really concerned or an investor's concerned about, " 149 00:09:19,080 --> 00:09:22,050 Anto Joseph: I really have no certainty where the market's going, I'd 150 00:09:22,050 --> 00:09:25,770 Anto Joseph: rather protect against maybe a bearish move," you can provide 151 00:09:25,830 --> 00:09:30,030 Anto Joseph: strategies which are hundred percent capital- protected, but can provide 152 00:09:30,030 --> 00:09:33,269 Anto Joseph: some layer of exposure to the market, or you can 153 00:09:33,270 --> 00:09:36,240 Anto Joseph: structure a product if you have a growth mindset to 154 00:09:36,270 --> 00:09:40,050 Anto Joseph: take advantage of that and participate in growth while still 155 00:09:40,050 --> 00:09:45,358 Anto Joseph: maintaining some level of protection. So they're highly versatile, but 156 00:09:45,360 --> 00:09:48,540 Anto Joseph: can be really structured around any objective a customer has, 157 00:09:49,020 --> 00:09:52,170 Anto Joseph: but also gives you that advantage of having liquidity as well. 158 00:09:53,760 --> 00:09:56,640 Sean Aylmer: Okay. So a couple of questions in all this. So we're getting into structured 159 00:09:56,640 --> 00:10:01,530 Sean Aylmer: products and high net worth individuals pushing into alternatives. First 160 00:10:01,530 --> 00:10:05,970 Sean Aylmer: question is, is there a concern when so much money 161 00:10:06,179 --> 00:10:10,080 Sean Aylmer: is going into alternatives and not in the traditional bond 162 00:10:10,139 --> 00:10:12,870 Sean Aylmer: equity area? Is that a concern, just the fact that 163 00:10:12,870 --> 00:10:17,070 Sean Aylmer: so much money's going into that? And the second question is, 164 00:10:17,070 --> 00:10:21,090 Sean Aylmer: those products themselves, they're not always that easy to understand. 165 00:10:21,480 --> 00:10:25,559 Anto Joseph: Yes, of course. And to answer your first question, within 166 00:10:25,559 --> 00:10:29,250 Anto Joseph: that alternative bucket, there's so many vehicles to invest. So 167 00:10:29,250 --> 00:10:33,360 Anto Joseph: you can actually diversify quite a fair bit across alts, 168 00:10:33,390 --> 00:10:36,929 Anto Joseph: so whether that be buying a hedge fund or a private 169 00:10:36,929 --> 00:10:40,829 Anto Joseph: equity fund or a commodity fund, ESG impact, there's so 170 00:10:40,830 --> 00:10:44,460 Anto Joseph: much in that sort of umbrella that an investor can 171 00:10:44,730 --> 00:10:48,780 Anto Joseph: diversify into. So regardless of a large portion of capital 172 00:10:48,780 --> 00:10:53,880 Anto Joseph: globally moving to alts, it's actually being diversified well. And 173 00:10:53,940 --> 00:10:57,540 Anto Joseph: really, the question comes down to do you want liquidity 174 00:10:57,540 --> 00:11:00,509 Anto Joseph: or not? And then, choosing the right vehicle. What's the 175 00:11:00,509 --> 00:11:03,509 Anto Joseph: investor objective and is that the right vehicle? So you 176 00:11:03,509 --> 00:11:07,260 Anto Joseph: still have plenty of options of diversification there. In terms 177 00:11:07,260 --> 00:11:12,420 Anto Joseph: of the complexity of understanding around a lot of alts, that's why a 178 00:11:12,420 --> 00:11:16,170 Anto Joseph: lot of platforms like us exist in the market because 179 00:11:16,469 --> 00:11:21,179 Anto Joseph: we've understood that, one, alternatives are complex and can be 180 00:11:21,179 --> 00:11:24,989 Anto Joseph: complex because there's such a myriad of options globally. But 181 00:11:24,990 --> 00:11:29,460 Anto Joseph: for Australian investors particularly, this is fairly new. The average 182 00:11:29,460 --> 00:11:35,099 Anto Joseph: high net worth in clients or investor in Australia invest roughly around 183 00:11:35,099 --> 00:11:39,780 Anto Joseph: 12% of their portfolio towards alternatives. And that was by 184 00:11:39,870 --> 00:11:42,478 Anto Joseph: a premium report wealth report that sort of came out 185 00:11:43,020 --> 00:11:46,020 Anto Joseph: almost a year and a bit ago. That's on the rise. 186 00:11:46,110 --> 00:11:50,790 Anto Joseph: But unfortunately, the education needs to kind of match with 187 00:11:50,790 --> 00:11:54,300 Anto Joseph: the growth of that sector. And so, platforms like us 188 00:11:54,300 --> 00:11:58,889 Anto Joseph: are designed to provide educational material, content, which is relevant 189 00:11:58,889 --> 00:12:02,368 Anto Joseph: to the alts market, which will help facilitate that process a 190 00:12:02,370 --> 00:12:06,330 Anto Joseph: lot easier. But yes, there is an education curve that 191 00:12:06,330 --> 00:12:07,050 Anto Joseph: needs to be met. 192 00:12:08,250 --> 00:12:11,189 Sean Aylmer: Well, I've been educated today, Anto, thank you very much 193 00:12:11,190 --> 00:12:12,450 Sean Aylmer: for talking to Fear and Greed. 194 00:12:13,049 --> 00:12:14,098 Anto Joseph: Pleasure, Sean. Thank you. 195 00:12:14,730 --> 00:12:19,109 Sean Aylmer: That was Anto Joseph, CEO, and founder of investment FinTech Stropro. 196 00:12:19,380 --> 00:12:21,510 Sean Aylmer: This is the Fear and Greed daily interview. Remember, you 197 00:12:21,510 --> 00:12:25,110 Sean Aylmer: should get professional advice before making any investment decisions. Join 198 00:12:25,110 --> 00:12:26,880 Sean Aylmer: us every morning for the full episode of Fear and 199 00:12:26,880 --> 00:12:30,389 Sean Aylmer: Greed, Australia's most popular business podcast. I'm Sean Aylmer, enjoy 200 00:12:30,389 --> 00:12:30,779 Sean Aylmer: your day.